French Intervention in Internet Deal Sends Bad Signal Says VC

By Anna Leach

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Pellerin: Investors plans must align

The intervention by the French government into the sale of a leading internet company has sent “a very bad signal”, a French V.C. said Thursday.

After Arnaud Montebourg, Minister for Industry, blocked the sale of video startup Dailymotion SA to Yahoo Inc last week, his junior, Fleur Pellerin the Minister for the Digital Economy has taken to the press to explain the decision. The scuppering of the private business deal was justified because the French State is a shareholder in Dailymotion parent France Telecom SA and its subsidiary Orange SA, she said.

“It is legitimate for the State to make its position known in this case because it is a major shareholder in Orange,” she said in an interview with the paper Le Journal de Dimanche.

“There are strategic businesses, as defined by law, where the State must intervene from time to time to make its position known,” Ms. Pellerin told TV channel BFM. She compared the video startup to military companies in which the government also holds shares: “Dailymotion is not strategic like EADS [European Aeronautic Defence & Space Co.] or Eurocopter or MBDA which makes ballistic missiles, but it is strategic in that it is a national champion for startups.”

“The plans of the potential investors must correspond to the industrial vision that I have for Dailymotion which is the same as that of the Dailymotion management and that of Orange shareholders,” she said.

In reply Jean-David Chamboredon, President at venture capital firm ISAI, said: “There is no guarantee that it won’t happen again.”

Through the government-backed bank, BPI France, the government is an indirect investor in many digital startups.

“The state is a very important limited partner in many VC funds through the BPI bank, and there is some direct investment. For the time being we don’t know what will be the government’s behavior in cases where it is an investor directly or indirectly.

“We can’t imagine that it will become a habit because it will kill the ecosystem, it will force some companies to get out of France and force some investors to stop investing.”

“The way it was done is a very bad signal.”

Public funding was not the same as private funding, an aide to Ms. Pellerin said. “With public funds it’s not only a question of making money, it can be different things.”

“The government can have a vision,” he said.

“Dailymotion was a specific case because it is making an important contribution to the area of communication,” the aide said. “Usually for common companies, the government will not micro-manage the company.”

Corrections & Amplifications:
An early version of this report did not report fully Ms. Pellerin’s comment to BFM TV: “The plans of the potential investors must correspond to the industrial vision that I have for Dailymotion.” She went on to say: “which is the same as that of the Dailymotion management and that of Orange shareholders.”

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